AUD/USD posted gains close to 1.0% on Tuesday, but has given up most of these gains. The sharp rise was in response to the unexpected decision by the Reserve Bank of Australia to hold rates at 1.50%. Other Australian releases were also positive. Retail sales slowed to 0.3%, beating the estimate of 0.2%. The trade surplus increased to A$4.95 billion, above the forecast of A$4.49 billion. In the U.S., there were no major events. JOLTS Job Openings improved to 7.49 million, beating the estimate of 7.35 million.
The RBA held the course on Tuesday, surprising the markets, which had expected the bank to cut rates to 1.25%. The markets had priced in a rate cut at close to 50%, so the decision to hold rates helped boost the Aussie in the Asian session. However, AUD/USD was unable to consolidate and gave up most of these gains in European trade. The Australian economy has been damaged by the economic slowdown in China, which is Autralia’s largest trading partner. Inflation fell to 0.0% in the fourth quarter, its lowest level in three years. This weak release raised speculation of a rate cut, but the RBA continues its wait-and-see stance, hopeful that the economy will find its feet without the help of a rate cut.
U.S. President Donald Trump sent shock waves across the equity markets, after announcing on Sunday that the U.S. would raise tariffs on $200 billion worth of Chinese goods as early as Friday, from 10% to 25%. On Monday, Chinese officials had said it would cancel the talks, but this turned out to be an empty threat. Chinese Vice Premier Liu He is scheduled to lead a Chinese delegation to Washington. Will the new U.S. tariffs be rescinded? Treasury Secretary Steve Munchin said that the tariffs could be cancelled when the talks resume, so the markets could quickly rebound from the current slide.
